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Friday, April 15, 2016

Fundamental Friday: 15 April 2016

Crude oil: Domestic production fell this week again with U.S. suppliers now pumping less than 9 million b/d. The trend continued emphatically with a drop of 31,000 b/d to 8.977 million b/d last week. This marks the end of a 525-day stretch where output was beyond 9 million b/d, a phenomenon that may not be seen again if the current price trend remains. Stocks, curiously, jumped last week about 6.6 million barrels to 1.231 billion. This increase in stocks was most likely caused by smaller refinery inputs which dropped by about 500,000 b/d to 15.941 million b/d last week. Refinery utilization decreased as well, falling by almost 2 percentage points to 89.4%. Both values are still above their 5-year averages.

As stocks continue to build and storage capacity is strained, production and storage amounts could drop off even more. The increase in stockpiles and decrease in refinery inputs was mostly caused by Exxon's refinery fire.

Despite losses at the end of the week, The WTI spot price has jumped back into the $40's closing at $40.40 Friday capping an 8.43% 5-day gain. The Brent spot price grew as well up to $42.84 on Friday with a 5-day gain of 8.48%. More to come after this weekend's meeting in Doha.

Natural gas: Natural gas fundamentals remained mostly unchanged this last week. Underground stocks fell by 3 bcf to 2477 bcf still 52.1% above the 5-year average. Total natural gas rigs remained unchanged at 89. With warmer weather, bullish increases in demand are unlikely. The EIA estimates that net supply change was -0.40% and net demand change was 1.40% for last week. Over the past 4-weeks, the average supply change was 0.22% and the average demand change was 1.45%. Based on the current trend, the market should stabilize slowly and price should increase as well.

The EIA also reported a bullish increase in natural gas burning power plants. In 2015, there was a 19% increase in gas-fired electricity generation. As a result, natural gas's share of power generation jumped to 33% from 28%. Expect most demand increases in the natural gas market to come from the deactivation of coal-fired plants.

Natural gas prices started this week out with gains that sent the price above $2.10. Losses on Thursday and Friday, though, sent the Henry Hub spot price to $2.009 and a loss of 4.38% for the week as the volatile trend continues.

Gasoline: Gasoline fundamentals appear to have been affected by the fire at the Exxon refinery last week. Finished gasoline stocks fell by 2.4 billion to 24.415 billion barrels last week. Component gasoline stocks fell by about 1.8 billion to 215.347 billion barrels as well. Both changes are consistent with the downtrend that can be observed over the past six weeks. Finished gasoline production fell by about 50,000 b/d to 9.568 million b/d for last week. Finally, product supplied jumped to a new 6-week high of 19.987 million b/d possibly signaling more demand to come.

The average price of regular gasoline across the United States fell to $2.069 per gallon with mixed changes across different regions of the country. Last week's loss marks the end of a three-week gain streak that led prices above $2.00 per gallon. Diesel prices did the opposite growing to $2.128 per gallon on average.